The Clever Way Amazon Gets Away With Not Always Offering The Lowest Prices
AP
That's not always true. In fact, Amazon will tweak its prices many times per hour (equaling millions of individual price changes per day), taking advantage of the psychology of price perception.
Amazon does this with a clever strategy that makes it seem like it undercuts its competition more often than it does. It offers its biggest discounts on its most popular products, while making profits on less popular ones, according to an analysis by Boomerang Commerce, a dynamic pricing company founded by former Amazon employee Guru Hariharan (we first spotted the analysis thanks to Re/code's Jason Del Rey).
"Amazon may not actually be the lowest-priced seller of a particular product in any given season," the report reads, "But its consistently low prices on the highest viewed and best-selling items drive a perception among consumers that Amazon has the best prices overall - even better than Walmart."
One example Boomerang found was a popular $350 Samsung TV that Amazon price-tested for six months before discounting it to $250 on Black Friday. That price point undercut competitors and Amazon likely sold a bunch of TVs. However, at the same time Amazon discounted the TV, it jacked up the price of a HDMI cable that people would want to buy alongside the TV. Amazon knew the less popular item wouldn't affect price perception like the TV would, so it went with the price increase.
Boomerang also highlighted an example where Amazon priced a best-selling router 20% below Walmart's price, but a less popular model at 29% more expansive than it cost on Walmart:
Popular router:
Less popular router:
Boomerang points out that the idea of the price perception strategy isn't new, but that smaller companies that don't have Amazon's dynamic pricing software can find themselves trying to simply price-match across the board, which isn't as cost effective. Boomerang wants to offer those companies Amazon-like dynamic price optimization. As of now, it has clients like Staples, Sears, and GrouponGoods.
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.
- I spent $2,000 for 7 nights in a 179-square-foot room on one of the world's largest cruise ships. Take a look inside my cabin.
- Saudi Arabia wants China to help fund its struggling $500 billion Neom megaproject. Investors may not be too excited.
- Colon cancer rates are rising in young people. If you have two symptoms you should get a colonoscopy, a GI oncologist says.
- Catan adds climate change to the latest edition of the world-famous board game
- Tired of blatant misinformation in the media? This video game can help you and your family fight fake news!
- Tired of blatant misinformation in the media? This video game can help you and your family fight fake news!
- JNK India IPO allotment – How to check allotment, GMP, listing date and more
- Indian Army unveils selfie point at Hombotingla Pass ahead of 25th anniversary of Kargil Vijay Diwas